On occasion, I’ve had the chance to share the story of my journey paying off my student loans. The reactions are often the same and they all want to learn and better understand how they can do the same thing for themselves. I agree to help them out, point them in the right direction and provide them with the tools I used to put together a budget I was successful with.
Despite any enthusiasm to chase after this and make being debt-free a story of their own, they all seem to hit a roadblock some where along the way. The fall back into what’s comfortable and what works. This is totally okay by me! It’s not my debt or my finances and I can’t make them do something they don’t want to do.
“Why Can’t I Budget?”
The simple answer to this question might be that you haven’t found a solution that works for you. You can find, with little effort, all over the internet several different ways to approach budgeting and how others have been successful at doing it.
For example, Dave Ramsey suggests that people use an envelope system where you put cold, hard, cash inside them every month and that’s all the money you’ve got to spend. I think this method makes sense and is a viable one if you’re accustomed to using cash for a lot things.
For me, I don’t use cash and I love online banking. I knew that I needed a solution that integrated with my online banking and could track all of my spending in one place. If it were up to me to do anything by hand, I would have failed because it was just too far off from how I managed my money.
Once you’ve considered all your options, maybe create a hybrid of sorts that pulls from several suggested budgeting strategies.
Where Is My Money Going?
I believe whole-heartedly that if you don’t know where your money is going, that it is as good as gone anyway. Which is sad, because no matter how much you make, you’ll always feel as if you are barely making ends meet or that your credit cards quickly get out of control.
Regardless of how you decide to approach your budget, I think that it is vital to understand where you’re spending your money. The best way that I have found to do this is with mint.com; categorizing all of my recent transactions into basic budgeting categories. This way I know how much I spend on groceries and eating out at restaurants every month. If I feel I’m overdoing it one area, I can make the conscious decision to cut back.
Tracking and categorizing your transactions is tedious and boring. But without doing this step, it becomes really difficult to know how you’re spending your money and ultimately be successful at not only creating a budget, but living it too.
Why I Think People Fail Creating A Budget
There is an old saying out there that goes like this, “If you fail to plan, you plan to fail.” I think that is true when it comes to creating a budget. If you fail at doing the needed research your budget needs, you’ll never find the success you’re looking for in budgeting your money to achieve long term goals.
To create a budget, I instruct everyone that they need to go back in time and categorize all past spending into our basic budget categories. This vital step helps create insight into what a realistic spending habit is for these different areas. It removes a lot of the guessing and more importantly helps you establish a realistic expectation of what a budget should be.
The best way to possibly illustrate this would be for me to ask you what your best guess would be at how much you think you spend each month eating out. You’ll likely ball-park-it based on what you think average meal prices are by the number of times you eat out. This works fine but its only a guess and doesn’t take into account more expensive meals and the months you ate out more often. By categorizing all previous spending the best that you’re able to remember, you’ll get a more accurate sense of what you’re really spending.
With that information, I then get an average amount spent eating out over the last 3 months or more. That average number is more realistic and one I’m more likely to not overspend in.
This is where I think people get stuck. I haven’t figured out why because once you get this far, it’s truly all down hill from here.
Let me know what you think in the comments below – if this isn’t your roadblock, then what is??